Why are VOIP services cheaper than conventional phones?

You might have seen ads of VOIP[Voice over IP] companies saying that a long-distance call will cost you a fraction(5%) of what you would pay in a conventional phone. Have you ever wondered how they are able to offer such a price. Let me de-mystify it for you.

Let's say that you own a phone company. You provide the telephone poles. You provide the wiring. You provide the switching stations. You provide the telephone. You provide in-house maintenance. You print the PHONE BOOK.

Now, let's say that you are a VOIP provider. You provide the software. You provide the connection to the phone system. YOU MAKE THE MONEY on the telephone company's work. You are cheaper and you are eating on the telephone company's former success.

BUT, the VOIP company can only sell to people that already have high speed internet. VOIP companies do not maintain any wires or telephones. So only smart people can use your service. Some VOIP companies provide the Telephone adapter kit, like Vonage, so the have to charge more than Skype.
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